. i'm kelly evans and this is "worldwide exchange." outgoing president hu jintao calls on on china's next leader to stamp out corruption and narrow the income gap. also this morning, stocks in europe bouncing after a negative session in asia. and following the dow's worse day in a year. and shares in socgen are trading higher as one time costs match good third quarter results. the ceo says why the bank's underlying performance remains healthy. >> when you have a credit which is improving, you have to recognize negative revenues. >> and amid violent protests,

draghi warns economic uncertainty is impeding germany as he prepares to oversee the latest rate setting meeting. welcome to "worldwide exchange." european central bank, bank of england, all meeting. ross westgate has been drafted up for that coverage so i'm on my own this morning. well, me and you guys. keep your responses coming to everything on the program. worldwide@cnbc.com, cn@cnbcwex. draghi expects economic activity to remain weak, so what is the likelihood of a rate cut? we'll get a preview from frankfurt. also spain testing investor appetite with the first auction of long term debt in a year and a half. we'll bring you those results as

soon as they're out within the hour. and banks, health care and gun stocks all reacting to yesterday's election result in the u.s. we'll head out to new york city later in the show for a preview of what to expect on wall street today. and more than 2,000 hand picked chinese delegates gathered at the great hall of the people to kick off the communist party week long transition. beijing will only officially reveal the next generation leaders thursday. hu jintao promised political and economic reform, but he stressed china won't abandon one party rule and will stick to the socialist path. eunice is live for us. this is his big final speech, so reading in sort of between the lines almost is very telling. it's the legacy he's trying to cath. and what less gassy is that?

>> many here believe what he is saying is significant in that it is his final farewell. he really was just reading through the work report to talks about the achievements, the economic and political achievements that the party has had. and also to outline the future challenges. one of the first challenges you had already addressed is the issue of corruption. he said the government needed to do more to root it out. >> eunice, we're having trouble with your sound. we'll get the bite rolled as soon as we can. when we hear from -- i'd like to go back to eunice if we can to stay on this issue.

but there's been a lot of focus in the last couple of days as to whether china's next leaders will be reformists or conservatives and just what the influence is of some of the older party leaders. so should investors actually be bracing not for a china that will continue reforms, but for a china that is headed to be somewhat more conservative in its sanz? >> a lot of people are hoping that it will be more reform minded. here in china and also among the foreign business community. people have been feeling that market reform has stalled. i was speaking to an american chamber of commerce president who said that he hadn't seen a significant market reform in the past five years. so there's been a feeling here that china has slipped back and that more needs to be done. >> eunice, thanks for joining us from beijing.

we'll sort out the sound and hear more from her in the next hour. staying with china, though, joining me onset is mark williams at capital economics and also frank ching professor at hong kong university. welcome to you both. on the importance of this transition and economically speaking, are we going to see a china that's still growing at a 7.5% rate, will we see a china supportive of some world growth prospects or is the game over? >> well, this is the big question, the leadership has to solve it. we'll get some clues at the end of the congress, but i think it will be a while before it's clear how well the new leadership functions in practice. a lot of the difficulty pushing through reform is that there are a lot of vested interests pushing back against those

moves. the top could find themselves stymied. >> and consumption, which hu himself has said this is what we need to to focus organization fundamentally change the structure of the economy, but this is has consumption fall as a share of gdp. >> exactly. and this is not a new issue. so we can't expect that just a new bunch of people come in, that the situation will change anytime soon. there are serious structural issues why china remains investment led rather than consumption led and the it would take big and far reaching policy reform to change that. >> will we see these reforms in light of the reports coming out of china as we mentioned with eunice just a few moments ago that perhaps we're not necessarily seeing as a reformist of a leadership for the next couple of years?

>> yes, we don't really know what the new leadership is. in fact, for the last ten year, hu jintao was the leader, but the previous leader was in the background and he retained a lot of influence. and now the new leader will have not just hu jintao to deal with, but also his predecessor. so two who he'll have to deal with. 20 old people who used to be on the bureau, all of which will be exercising some influence. so i think this new leadership will be rather constrained at least for the first couple of years. >> and in the u.s., we often talk about the october surprise before the elections. this year maybe it was super storm sandy. in china, it seems to be the emergence of the one seen behind of scenes as pulling the strings here.

you can explain to people why we're suddenly talking about him and what his importance is? >> even though the people's republic is 63 years old, they don't really have a system in place for succession. mao was leader for life until he died. and then his successor was again a strong man, he was not the president, not a prime minister, not a party general secretary, but he was the ultimate leader. and he decided that min would take over after him and then hugh engine you take you. thousand he's gone. there's nobody around, nobody from the first generation could decide who the next leader will be. so it's the current generation of leaders who have to decide for themselves how they will be succeeded. and this is a totally new experience for china. >> and it's also an experience that the rest of asia is

watching very closely. as you say, despite the global media attention very much big on the u.s. election, it's actually this leadership transition in china that matters much more for emerging markets. >> this is the big question, can china put its economy back on a more sustainable growth path. one way or another, china is going to change in the next ten years. the question is whether it shifts smoothly away from investment towards consumption or whether that happens abruptly because we have the emergence of massive overcapacity and slump in corporate profits. and for the rest of the world, commodity producers will be hit extremely hard if china cannot manage this process. but the flip side of that, if it can, then there's potentially markets opening up for consumer products and services and so on. >> so what is the house view, where do you see china growth next year and world growth? >> on china, i think it's rather

optimistic. we see growth in the 7% to 8% range for the next few years which i think is lower for most people in the market. >> lower than most? do >> yeah, at the moment it's that it will rebound at 8% or 9%. but i think risks really are on the down side. huge uncertainties about the extent of overcapacity in the economy. if you're investing more than half of your income, for your investment to overshoot. and we've seen over the past year the auto sector, the steal industry, construction equipment, all of these sectors really suffering because of the balance of investment that they had two or three years ago. the big question is whether that will be limited to individual sectors or whether it spreads out and becomes an economy-wide problem. >> having heard that a lot of consensus still seems to be growing for 8% to 9%, is that a realistic view? >> i don't think that's realistic at all.

and i think china really has to focus on tackling domestic issues. hu jintao talked a lot about corruption and he used language that i think has not been used recently. he said if corruption is not tackled, it will mean the end of the communist party and the end of the states. this is language used in the 1940s. so this is really very significant. >> what else do you you jumped out with hu's final important speech, what were the key points? >> i haven't had a chance to look at the speech yesterday. but i don't think this is his final speech. he still has three months to go as president. this is his final speech as leader of the party. he's leader of the party, head of state and also head of the ministry. and looks like he'll remain that

head for the couple more years. so he'll be around for a while. >> great point. is it point that he hangs on to that military post? he probably won't bes as vocal. so is holding on to the mill tar role significant or just part of the process of handing over you power? >> i think it's very significant. i mentioned ping was head of the military until after the square massacre. he finally gave up that last point. so all of his success ors held on to that last post and it looks like hu jintao will hold on to that last post for a while. >> want to thank you both very

much for your time this morning. on this important day, let's see what the market reaction is. take a look at the stoxx 600. up 0.3%. for the most part seeing advancers outpacing decliners by about a 3:2 ratio. so not big move, but then if we look at the bourses, we can see the moves to the up side. the ibex add building 0.1%. the xetra dax up by a similar amount and the ftse adding 0.4%. so really a reversal from the trading action that we saw yesterday. helped by a couple individual names. socgen, siemens, among those in the green. siemens up 4%, swiss re 2. real hear from carolyn on that. and we'll hear from stefane about socgen earnings.

not the best signals about the health of the construction industry. forex, we've seen some interesting moves. just what is the u.s. dollar up to? that's what a lot of strategists are trying to figure out. we'll ask hsbc about that. the aussie dollar is one of the lone places we're seeing some positive action again today, 104.16 adding a tenth of a percent there. sterling weaker against the dollar. dollar-yen is below 80. it's 79.93, shed building a tenth of a percent, as japan has reported its first current account deficit post-adjustment to all the figures since statistics began in 1996. and finally the euro-dollar is just barely weaker, 1.2769, this ahead of the ecb's policy meeting and after greece has improved the latest round of austerity measures. what impact is that having across the bond spaes? you can see relatively risk on. spain and italy seeing prices

rise, yield falling. spain of course has a big bond auction coming up that could meet its funding for the rest of the year if it goes well. the u.s. ten year meanwhile is actually rising a little bit, 1.66%, a rebound from what we saw yesterday. the bund yield same action. we're seeing the price fall, the yield moving a little bit higher. let's check in now on how markets are doing across asia. i mentioned japan, but li is keeping an eye on everything given this important day in china. >> thank you, kelly. it's a sea of red for asia following wall street's drop as investors shift their focus to the looming fiscal cliff and lingering concerns about europe. while a lot of focus is on the communist party in beijing, the com positive the had its worst day in nearly two minutes.

hang seng suffered its worse daily loss in 3 1/2 months and we saw a broad based selloff in commodity lays, industrials and financials. nikkei slipped 1.5% to more than half month low. the yen strength took a toll on automakers and other exporters. citizen tanked 8% after cutting it full year outlook. down beat september orders added to pessimism. elsewhere, south korean banks, steel makers and ship builders weighed on the kospi. australian fell the most despite a stable jobless rate. miners led the declines. sensex now lower by a quarter of a percent. back to you. >> thanks very much for that. we'll check back in with you in a little bit. up next, mar ydraghi as war markets the slowdowns has reached germany.

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it's all about china on the program today. in the meantime, though, you can also get who are if you head over to cnbc's special china reports on our website. it's changing china.cnbc.com. elsewhere there were chaotic scenes inside and outside the greek parliament last night as lawmakers narrowly approved an austerity package. some 100,000 anti-austerity protesters were gathering on the second day of a 48 hour national strike. rioters as you can see there threw rocks and bombs at police who responded with tear gas and water cannons. meanwhile parliamentary workers interrupted the debate on the measures by walking out when they discovered their salaries would be cut and several lawmakers were expelled by their parties for refusing to back the cuts and tax hikes worth 13.5 billion euros. speaking earlier, the president of the chamber of commerce said

it's imperative greece is included to protect struggling eurozone countries. >> the esm needs to be activated immediately so that greece is part of this protection mechanism as well as inclusion of greece into the the draghi mechanism concerning the protection of the spanish and the italian banking institutions. the greek banking institutions and also got to be added on to this mechanism so that they can begin to address the international capital markets. something that they haven't done over the last two years. >> the ecb is widely expected to hold interest rates steady at a record low. draghi spooked markets yesterday saying he expected the eurozone economy to remain weak and warned the slowdown seems to have reached even germany. well, from germany joining us from frankfurt is our very own silvia wadhwa. is the impact of the slowing economy being felt there and

could it mean a surprise rate cut today? >> yes and no. yes, the impact is being if he would here not only the impact of the eurozone crisis. it's not as if demand around the globe was really rock and roll about so everywhere we have declines and then of course germany as an export company. no, we don't expect a rate cut today, but maybe later this year for the department meeting. not because it would help. it will be an act of utter desperation saying can't do any harm, so we might as well try that. and to the omt program, there are a lot of mysteries about the omt. greece will not have access to the omt program, not in this life time. a country again to the conditions has to have full access to the capital markets. a country has to have applied for a program which of course would apply for greece. and the country has to have

primary esm buying. and then the ecb might decide that omt could be activated. so at the moment, that counts out ireland, that counts out greece, that counts out portugal. portugal and ire a land to an extent because ireland is expected to at least return to the capital markets soon enough and greece is a no into area for anything called omt anytime in the near future. and for spain, we need a country report, a country application, we need the esm buying and then the ecb might activate omt, not before. >> and is it really these issues, these policy issues which the european central bank is now involved in that are more important in the view there than what they do with interest rates? >> absolutely. interest rates are a footnote. let's face it, we're below 1%.

a tweaking of the interest rate from 0.75 to 0.50, how can that be that decisive for the battles against anything that we got at the moment? no company, no bank is going to make investment decisions on the basis of this rate change. what needs to be injected into the market is confidence, trust, visibility, and if anything, the omt can do that more at least it has done ever since it was announced in the past, then interest rates can right now. but maybe more soberingly, monetary policy is almost at the end of somewhere where it can influence the markets and influence the economies to an extent that it makes a difference. i think the banks have to start healing themselves and lending again and the companies have to start having confidence in the economies. but how could they if all the

respective countries in terms of the government and the budgets are still so far up pardon sugar creek that there isn't any confidence in these economies. >> silvia wadhwa from frankfurt. we'll have more with you in the next hour of the program. in the meantime, it's a close call if the bank of england extends its qe program when its announces it own policy decision at 1300 central european time. economists saw a 60% chance of topping up its 375 billion pound stimulus. it's fallen to 40% and it comes amid somewhat better economic data and policymakers voicing concerns over inflation and the effectiveness of the program. u.s. political leaders meanwhile are promising to avoid the ever looming fiscal cliff. u.s. house speaker john boehner said he'd pursue a deal with president obama that would include higher taxes under quote/unquote the right conditions to help reduce the country's looming fiscal cliff. and just when new york city

thought it was all over, a nor'easter has smacked the tri-state area overnight. dumping inches of snow over some of hurricane sandy's hardest hit areas. wind and heavy snow have brought down power lines and electrical wires and thousands who lost power because of the last storm just lost it all over again. the storm brought the city to a virtual stand still last night. clean up crews have been working, though, to remove snow and clear the streets. we'll keep you posted on how that is doing as we look forward to the u.s. market opening today. coming up next, though, china's new leader will soon be revealed as the communist party's 18th national congress gets under way, but what does the transition mean for relations with europe?

hu jintao calls on china's next leaders to stamp out corruption and nir row the income gap as the communist party congress begins in be beijing. dow closed below the 13,000 level for the first time since august 3rd. shares in socgen are leading the trade higher as analysts say one

time costs mask good third quarter results. the ceo tells this channel why the bank's underlying performance remains healthy. >> when you have a credit which is improving, your cds is going down, you have to recognize a negative revenues. >> and amid a backdrop of violent protest it is in greece, draghi warns economic uncertainty is thousand even impacting germany as he prepares to oversee the ecb's latest policy change. european markets are in the green. you can see there the reaction -- do we have those figures? earlier today taiwan surprised markets by reporting a drop in exports and imports. sterling-dollar is trading weaker by about a tenth of a% this morning. as for the bourses, they're generally in the green.

ftse 100 adding about 0.3%, ibex 35 now has turned lower, that's a change from the the last time when we checked in. bond wall, we'll show you a bit of the mood there. we're still seeing somewhat better attitude, although it looks as though spain and italy yields are now flipping higher. we'll look to see what has driven this sentiment in the last few minutes. take a quick look at forex rates. dollar weaker by about a tenth and now a quarter of a% to the down side. sterling falling against the dollar, as well. all the focus, though, is on asia today. hu jintao began charting the course for china's next leaders saying the ruling communist party had to step up political and economic reforms, but stick to its one party system. so will china's new leadership line upbly economic reforms? louisa bojesen caught up with the vice chairman of the standing committee of the national people's congress and asked him just that.

>> different leaders have different leadership style, but generally speaking, they will follow the existing policy. so this will be no substantial changes. >> what do you think china's role should be in addressing the issues in europe? >> well, on the one hand certainly we would like to do our best to support the eurozone to dealing with the crisis. but on the other hand, we are still a developing country. our capability is limited. so we would like to see what we can do. but certainly we would regret to see the eurozone overcome the difficulties by themselves. >> do you think that european leaders are doing what they should be doing at the moment?

>> well, actually, i think in short terms, i think that's fine. because you need to cut the governmental expenditure. you'll need to cut the soescial roles to reduce the debt. but long range point of view, i think development economy growth still needed to recover. so it's the balance between short term and long term. >> and how do you respond to people who are worried about the quote/unquote slowdown seen in china's economic growth? >> well, there is an economic slowdown all over the world. so china because now we are closely enter ringed, the slowdown is normal. but certainly on the other hand we have to take more measures to

prevent the hard landing. i think there will be no hard landing in china this time being. this year we still can have a 7.5% growth rate. but on the other hand, we have to change our development pattern. that means the shift from relying on foreign demand and investment to relying more on domestic consumption. >> and the european union has launched an investigation looking at the chinese solar panel market looking at allegations that products have been state subsidized so they can sell to t. for cheaper prices abroad. just the latest in a long line of trade disputes. joining us is an economist from standard charter. so how important is this latest trade dispute over solar subsidies in particular? does it tell us something more

broadly about the relationship? >> i wanted to pick up on the last point made by him about the shift towards consumption led economy. without a doubt whoever will be in the chair in the top leadership positions which will become apparent next week, it is very clear that the shift is towards this rebalancing towards consumption-led economy. so what does that mean for europe? this means that china will have a larger and larger stake in europe as the time will evolve. so what does that mean? it means europe needs to build a better relationship with china. and really this change in new leadership gives a great opportunity for eu countries to embrace this relationship. now, for sure china historically has been much more domestically focused. but with the new leadership, it's increasingly likely that more externally focused agenda

will be pushed to priority. >> i wonder, too, you mentioned the importance of consumption and how it will be a key focus for europe, as well. but is this attitude that we're seeing actually not indicative of almost the opposite which is that, you know, buyers in europe, buyers in the u.s. are protecting their own industries? >> absolutely. we are living a global recession really and we're not fully out of this recession. and of course naturally countries are going to be protectionists. but that's not necessarily the best for the global economy. we think that what needs to happen is that trade needs to continue growing. indeed we think it will continue growing. new trade corridors is something that at is an tarred chartered, we have been predicting. and it will continue to grow. so by new trade corridors, we mean the growth in trade of emerging economies. but at the same time, you're right, the current growth

volumes between eu china and indeed china u.s. will still represent large proportion of the total global trade. so that means that trade volume needs to continue growing and protectionist policies won't help that at all. >> it also comes at a time when europe doesn't really have the economic strength to flex. we're reminded to look at the taiwan figures this morning which surprised to the down side. how vulnerable is global trade which china is still extremely reliant on. and europe still is, what, the second biggest if not the biggest economy in the world. >> absolutely. and i think that the exports slow down has been a key concern really for china. it is investment led economy. export sectors are suffering because they represent the largest number of jobs really in the economy. and labor and jobs really for

china is very important and very key. so that we will see policies addressing the unemployment issue. and certainly in europe, policies do need to ensure that the unemployment figure has come down. it probably won't be in the next year or so, but certainly in the medium for longer term, we need to make sure that the labor issue is addressed both sides of the atlantic. >> no one has patience for anything that takes more than a couple of days at this point it would seem. thank you very much for joining us this morning. with some corporate news, profit at china's top pc maker grew at its slowest pace this more than two years in the second quarter. gentlemen, lenovo netted higher

than roit estimates. shares were done ahead of the earnings release and you can see down about 2.7%. and fresh data from japan suggests the world's third biggest economy is inching closer into recession. core machinery orders and the current account surplus both posted bigger than expected drops in accepts. services sector confidence also fell to its lowest level since may 2011. japan of course has been coping or trying to cope with the strong yen slowing global demand and tensions with china. and the data only reinforces calls for more stimulus soon. the bcht ocht j will announce its next policy decision on november 20th. meanwhile, the government's ability to deal with japan's slowing economy is under pressure. political wrangling has been holding up a bill. there may be a break through, though, and let's go to tokyo for the story. >> yes, hi. the government introduced it

crucial bill to parliament this afternoon hoping to pass it through the lower house by as early as next week. but more challenging for the prime minister noda is whether he can push the bill through the opposition controlled house without promising to call a general election by year's end before the good news for noda is the opposing leader has hinted that his party may agree to the bill even if noda does not promise the election before the measure which is failed to pass the ordinary diet session will allow the government deficit covering bonds to finance 40% of the fiscal 2012 budget. without it, the finance ministry will have to freeze more spending and government bond issuance would come to a halt with a ten year debt august on december 4th. back to you. >> thanks very much for it that. and now a quick look at what and he on the agenda in asia tomorrow. key economic data out of china, the october indicators are expected to signal a recovery in

chinese growth thanks to beijing's fine tuning policies. we'll get cpi and ppi, expected about 2:30 a.m. central european time. and china will release retail sales, fixed asset investment at about 6:30 a.m. central european time. on the earnings front, we're waiting on results from suzuki motor and central bank watch continues with a policy announcement expected from the bank of korea. for a quick preview of the spanish auction, we're joined now by don smith, government bond strategist at icap. really interesting action in the last couple minutes. do you still expect this auction to help spain meet its funding needs for the rest of of the year?

>> 90 billion funding target, so, yeah, it should be a recently significant auction for spain in that respect. >> and we are seeing some chatter in the market about whether spain will or will not apply for a bailout before the end of the year. we've seen these rumors before. is it significant in your view as to the timing here? >> it is. i think the market is coming around to the view that probably won't go for a bailout in the near term. so if we see any news on that, it could have a huge impact on the market. we're seeing still quite a wide differential between spanish government bond yields and the three to four year sector of the market and germany is around 320 plus. and in the event this they do formally request some kind of bailout that meets the conditions of the omt, we're likely to see a very sharp and very substantial contraction in

that spread. so any significant news coming through that really increases the market's expectation of a bailout announcement near term could have quite a big impact on the short end of the spanish curve. >> those expectations perhaps getting priced in. 5.77% was the latest. don will be with us after the break with the results from that spanish auction. after the break, we'll also find out whether the ceo of socgen is blaming stupid accounting rules for a big drop in quarterly profit. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs.

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welcome back to the program. just in time for a critical spanish auction. the results are coming in. spain has managed to sell the bond. we'll find out what the yield is and just how big the auction was. again, if it came in at about b help spain meet for the rest of the rear. it looks as though the 2015 bond had a bid to cover of 2.8 versus 2 at the last auction.

so stronger demand there. the 2018 bond has a bid to cover ratio of 1.6. we're getting some yields through, as well, looks like the yield on the 2018 came in at about 4.769%. now, for the 2015, we saw a significant decline in yields. that one coming this 3.678 versus over 4% the last time around. and the one i've been waiting for, the 2032 bond came in with the yield of 6.366% up significantly from 4.7%. so let's get don smith back on line. he's government bond strategist on icap. what's your initial reaction to what we're seeing here? >> you have a figure from the total amount in the auction? >> waiting to see the total amount actually. so let's see. we've got at this point confirmation they sold 992

million euros worth of one, that was the 2015. a little over 3 billion euros of the 2018, they've also sold 731 million worth of the 2032. so if this is correct, that's 4.6, sounds like a little over 4 1/2 billion which would put it on the upper end of that range. >> which is pretty good. the bid to cover ratio is high, the five year. pretty much as expected. you this is a new bond. they got to have slightly liquidity issues with the new bond. that's why most of the foe causes was for the jan 18. so 1.6 build to cover ratio, not bad at all for that bond given it's the first auction and given the size of the amounts on auction. yield a little bit higher obviously backed up just into the auction. but overall, the results

reasonably comfortable. >> don, that precise figure is 4.76 billion. so certainly on the high end here. but again, just to go back to sort of the point we've been making all along when it comes to spanish auctions, we've never really had a failed spanish auction. they've done okay. this really hasn't baby the swing factor when it comes to whether spain will ask for funds. if anything, the european central bank talk seems to have packed yields for the time being. >> yes, it does. and many people in the market talks about this being a temporary factor that will erode over time. spain doesn't ask for a bailout, then the expect of this and depressing spanish yields will just start to evaporate and yields will start to move higher. i don't think that will happen necessarily. i think yields will move higher in spain, but for different reasons. i think this is a permanent factor, the threat of massive ecb purchasing, particularly the short end of the market is pretty much always going to be there now that the ecb set out its omt strategy. so this will be a permanent feature of the market that

continues to price spanish yields. i think what will change going forward is what happens to the economy and funding pressures. i think if the economy really begins to tick done more seriously next year, we've got spain now just on the precipice of moving to junk status with regard to the credit rating agencies. and if we see, you know, the economy really heading south next year and we see possibly over the next since months or so a move from one of the credit ratings agencies that puts spain into junk status, there will be treasure upward pressure, the sort of pressure that the threat of ecb action will be very difficult to maintain a lid on spanish yields. >> now you that spain and we can confi confirms has met its target for the year, it's raised $86.5 billion, does that not take

pressure off to tigger funrigge? >> it does short term. i still don't think that current yield levels are that comfortable for them, but that the risk is for help that next year they could fall way behind the kifsh. as i said, much depends on what happens with the spanish economy and the credit ratings agencies. but if the credit ratings agencies moved spain any one them into junk status before spain goes to the the troica for an official bailout request, then i think spain could be suddenly behind the curve and really could be an uphill struggle to keep the downward pressure on spanish yields in that scenario. but so i think it's he really important spain goes for the bailout much sooner rather than later. >> don smith, icap, walking us through the results. don, thank you very much. corporate news thoet.

sock general has posted an 86% slide in net profit in its third quarter, below analysts forecasts. but stefane caught up with their ceo and asked him what was behind the big drop in profits. >> just exaepgsle a item which is are related in particular to the valuation of our own debt. this stupid accounting thing which means when you have a credit which is improving, your cds is going down, you have to recognize negative revenues. but beside the two main highlights of the results is first of all an additional significant step towards the transcript formation of the group where this particular an increase in the ratio from 9.9 to 10.3%. the announcement of some disposals, in particular our greek subsidiary. and the end of a deleveraging of a cid business. i think these are elements key in the transformation. on top of that, we are also announcing a significant drop of

our portfolio which is limited. second thing, very good, very sound of the business and that's what is key for the future. >> what's your outlook for the end of the year in terms of macroeconomy but also for societe generale? >> i think we can't expect a big change. one key element will be of course the debate on the fiscal shift in the u.s. which would undermine largely the kind of growth we might have at the beginning of 2013 in the u.s. in the emerging markets, we know that there has been a slowdown. i don't expect a big change. and in europe, still relatively sluggish which we all know. before delivering results, it will take some time. >> how do you see the cost of risk in the next coming months? >> again for this third quarter, stability overall for the group.

we have said that in the french retail, there is always seasonality in the fourth quarter and we should see some slight increase in the risk. i think we should still see stability in the international retail in the financial services. and i don't expect an increase in the risk of cib, the quality of the portfolio is there. >> again, that was the ceo of societe generale. their shares up in the range of 3% earlier this morning. now they're just barely holding positive. while it was a positive session in zurich for swiss re or at least it is so far, better than expected results. and said it's considering paying a special dividend to shareholders. carolyn roth joins us from zurich with the latest. shares up nearly 2%. >> but they are losing a little bit of steam. up by as much as 3% earlier in the session. but there had been a lot of speculation about a special

dividend for some time now and that's also why we've seen the run up in the shares the last couple weeks. it's not a done deal yet, though, because the final decision will only come in march. as for the overall numbers, they were clearly better than expected. net profit for the third quarter came in at $2.2 billion, almost $1 billion better than forecast. and this is partly because of a better than expected investment result and also also because of the low number of natural catastrophes in the third quarter. speaking of nat cats, there was a lot of anticipation as to what the fallout from sandy would be. swiss re declined to give us an exact estimate of the claims number, but we did talk to the cfo about what the fallout could be for the industry longer term. >> given that it will be an event that's larger than hurricane irene was last year, we expect to have some impact on the market. charges for clients and the

reinsurance sector will probably have an impact on pricing. >> and that's usually the case with these natural catastrophes. the silver lining is higher reinsurance prices and, yes, in fact swiss re does expect moderately higher prices as they go this to the renewal season for 2013. specifically for pnc. on that note, back over to you. >> yeah, silver lining for sure for the companies, not so sure about the impact for households. and that will be something to watch in the u.s. in the months ahead. shares in siemens are also rising after they unveiled plans to cut costs by 2014. the company saw it profit dropped 2% to just under 1.5 billion euros in its fiscal fourth quarter. siemens is struggling to remain competitive in an economic slowdown. the ceo talked about their savings plan. >> we're targeting cost reduction program and we have --

wherever we find an issue where we have structural issues, we will adapt. the latest one we had to basically layoff 600 workers in the united states based on our programs because subsidy support was running out and we had to adjust. so structurally where we have changes we will adapt and where we have economic down sides, we have enough flexibility to go through the cycle. >> and coming up next, as the 1th national congress of china's communist party gets under way, we'll get all the latest from beijing. frank, instead of scratching your way to retirement,

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these are your headlines from around the world. outcoming president hu jintao calls on china's next leaders to stamp out corruption and nir ar the income gap. stocks in europe are trying to hold on to the green following the dow's worse day in a year. it closed below 13,000 for the first time since august 3rd. and spain reaches its issuance target for the year after either latest debt auction amid unconfirmed reports the country may not ask for a bailout this year. and amid a back drop of violent protests in greece, draghi warns economic uncertainty is impacting germany as he prepares to oversee the ecb's policy today.

>> today we're looking at 12,862 after the dow had a big drop yesterday, ugly day across the u.s. for the most part. and today it's fighting to open high he. but you have to take fair value into the account and we're still looking to open red. this may have something to do with a negative attitude that we're seen. ibex has flipped to the negative on a bit of this market chatter that it may not ask for a bailout. the xetra dax up on.4%, ftse 100 up about 0.2%.

let's take a look at the bond space. woor seeing prices fall, yields rise, the spanish ten year 5.75% they did meet its auction target for the year. italy now seeing yields back up to 4.98%. critical to watch to see whether we breach the 5% level this morning. now a look at forex. we saw the euro-dollar open the session about a tenth of a% lower. now at fresh two month lows. so what's the impact in asia? let's get the latest in asia. >> asian markets retreated tracking wall street's drop on renewed fiscal cliff fears and lingering concerns about europe. eyes on the com uhe amunist par

congress. energy majors tumbled. the hang seng suffered its worse day in 3 1/2 months. we saw a broad based selloff in commodity plays, industrials and financials. lenovo shares lost 2.7% even though q2 profit beat forecasts. over in japan, the nikkei ended at a three week low with down beat machinery data adding to pessimism. steel makers and ship builders weighed on the kospi and australian shares snapped a four day winning streak despite a stable jobless rate. miners led the losses. the aussie market finished down 0.3%. and lastly sensex lower by about 0.4% at the mox. back to you.

a day after the u.s. elections, china has begun its leadership transition. outgoing president hu jintao warned of corruption urging political and economic reform, but he also stressed that china will not abandon one party rule and will stick to the socialist path. eunice yun is following the story for us and joins us with more. what's the reaction there as this key leadership transition gets under way? >> well, right now there is very high hope that the next generation of leaders be much more reform minded specifically

the american business community. i was speaking to the president of the american chamber of commerce this week and he said that market reforms really had stalled and he was hopeful that the next generation would be able to really kick start this whole process. of course the time frame is something that he was quite concerned about. also he had been saying that one of his big complaints is that he hadn't seen any significant market reform in the past five years. now, at the opening ceremony, president hu jintao z. did address some of these concerns calling for a more robust consumer culture and that is something that many people here believe that the economy desperately needs. >> translator: we must stick to our strategic focus, expanding domestic demand to speed up establishing a mechanism to support and spur consumption and to increase the size of our domestic markets. >> and the presumed next president of the country is a

man named ping and at a visit to the united states back this february, he had said he had hoped washington and beijing would have a new type of relationship and that's a concept that the former prime minister of australia, a traditional ally to the united states, said he would support. >> i believe the president will be someone that president obama can do business with. and that's why i called again for a new u.s. china strategic road map. this is absolutely necessary for the peace of east asia. >> so both beijing and washington have to work through a whole host of issues that are currently straining both sides. trade disputes and currency and other security issues within the region. >> we'll have plenty more on that leadership change coming up

in the program. you can also check out plenty more coverage on cnbc's website. and of course if you want to share your thoughts on this transition, you can e-mail us worldwide@cnbc.co worldwide@cnbc.com,. and stay tuned because at 5:20 a.m., we'll have in-depth analysis on on what the chinese leadership transition means for china/u.s. relations with a guest who says we should brace for more nationalistic, not u.s., but china for a while. it will be a fascinating victory period after president obama rose to victory, that is, little time to celebrate on wall street yesterday. take a look at what's happening. we saw the dow jones give back all of its gains for the last several months. it fell 2.4%, 300 points. we haven't seen a move like that since the end of last year. bank stocks were particularly weak. some cited president obama's win here as a key reason for that.

apple also one of the names in focus. it breached correction territory down 20% from its peak this year. it shed more than 4% as you can see yesterday and that's certainly given apple's size, importance and holdings spooked the market. one point of solace is that the vix did not leap yesterday even though markets were selling off. it moved higher. it did add about 8%, but at 19, still below sort of the 20 or certainly high 20 levels that would perhaps have signaled more trouble ahead. so we'll see if that means anything for the market today. of course we have seen european markets turn weaker in just the last couple minutes. now, u.s. political leaders are promise to go avoid the ever looming fiscal cliff. john boehner said he'd pursue a deal with president obama that would include higher taxes under quote/unquote the right conditions to help. our next guest says obama's victory will lead to a risk on phase in markets especially when it comes to the u.s. dollar.

joining us is dara mahr. >> it lasted for about 20 minutes, didn't it? we did say it would show how preoccupied the market is with this fiscal cliff. bam, bernanke, no china standoff, if that faded that quickly, it really just und underlines how important this fiscal cliff is for markets going forward. >> so much of the selling pressure we saw yesterday came during the european session and again today, we're seeing europe fall sharply not necessarily on what's happening out of the u.s., but apparently concerns about spain. >> yeah, i think we've had a confluence of events here. we had soft german numbers, we had draghi saying germany's been dragged into this eurozone crisis and i'm ready to buy bonds that won't push up inflation and of course we're all waiting for spain to ask for helpnd and the signal is that the market is getting frustrated and that a part of the response

there is for cuts. i don't think they will, but there's been a combination of com tail that's not worked for risk at the moment. >> if anything, the dollar's strength has been surprising. now that we're seeing germany weaken and pricing in ecb rate cuts, where is the euro headed there here? >> at the end of the day, i think spain ultimately will have to ask for help. and i think if the ecb cuts, it will only be a 1.25. and at the end of the day, you are going to come back to the fiscal cliff. you suggested it wasn't the immediate preoccupation, but that's where we're heading. i don't think under those circumstances the dollar would be a safe haven. >> if you look at what's happened to japan over time, its economy has weakened and yet the

yen has remained so strong. we're seeing asian carmaker pulling out of other markets. the current account is now in deficit. is europe at risk of going down the same path if not even in a worse way? >> we've been in the battle of the uglies for a while. the eurozone story has also been a binary one for me. i think everything we've seen so far still to me points to integration, so i think that has to keep you broadly confident about the euro and the euro project. i think we can talk about weak german growth, but that's a luxury question for me. we're no longer asking is the euro going to be here. just what does that mean for interest rates. these are conventional approaches to currency. i think it's wonderful that we're back there. >> if we continue to see action like we're seeing the last couple sessions, that question may soon be back on people's lips. >> i think it will, but i think the ecb would say fantastic. if the kind of questions markets are asking themselves is if we cut rates, what does that mean

for the euro if germany posts a strong mum, what does that mean, that's a lot better than if greece is still going to be there on monday. so we're in a way more comforting and if it means lower euro, i don't think europe will mind, but we think folks will come back to the dollar ultimately. >> okay, dara, thanks very much for your time this morning. and stick around, because on the program up next, nor'easter has dumped inches of snow over some of hurricane sandy's hardest hit areas in the northeast. we'll get all the latest. ♪

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these are your headlines. spain reaches its 2012 funding target with a strong take up at its latest bond auction. the communist party congress kicks off in beijing with outgoing president hu jintao calling for major reforms. and the european central bank is set to decide on rates amid a backdrop of violent protests in greece. the ecb is expected to hold rates. draghi spooked markets when he said he expected the eurozone

economy to remain weak and warned the slowdown seems to have reached germany. silvia, correct me if i'm wrong here, but in the past when draghi talks about weakness and we it talk about european central bank maybe doing more, shouldn't that be risk on? why the negative reaction? >> well, first of all, probably for two reasons. if he now thinks that the core eurozone economy is also if not falling off the cliff but slip sliding away, let's first of all not good news because of course germany information stress determine any had hold out quite well so far. interest rate policy is at the end of its tether in terms of the leverage for the economy. from 0.75 to 0.50, is that

really the clincher for let's say for a siemens, for a daimler, for a volkswagen, for peugeot or renault before they decide whether to invest in a plant or create more jobs or go if for big loans. not really. not even for a bank. at this level, the change in interest rates can be the winner or loser, no, right now we're looking at what is happening with the omt. is the ecb prepared to lose its conditionality condition, how conditional is conditionality. are they any closer to doing in i go on spain. at the moment, there is the feeling in there that we're in a bit of a deadlock, that we're in the waiting loop for things that might come or might not come. >> silvia wadhwa following the ecb action for us today as will

ross westgate. he'll be joined by silvia later in ht day with the policy decision also of course waiting on the bank of england. so definitely on central bank watch today. also keeping an eye on spanish bond yields. there are plenty of questions about whether spain can extricate itself from annual increasingly austerity induced economic downturn despite whatever the ecb might do today. wrus when new york city thought it was all over, a nor'easter has smacked the tri-state area overnight dumping inches of snow over some of hurricane sandy's hardest hit areas. went and heavy snow have brought down power lines and electrical wires and thousands who lost power because of sandy just lost it all over again. the weather channel's mike bettes joins us now for the latest. mike, you've named this storm. tell us what's happening. >> that's right. this is winter thunderstorm athena and it is spinning off the northeast coast, produced plenty of snow in so many places. take a look at some of the very impressive snowfall totals. manchester, new jersey, again, a

spot hit very hard by hurricane sandy, a foot of snow now toward atlantic city, about 2.5 inches. ridge field, new jersey, plus seven inches. up into new england, very heavy totals. even new york city itself almost 4.5 inches of snow just adding insult to injury after all these people just got hit by a hurricane. but you can see we still have a long way to go. plenty of snow still falling just outside of new york city up through connecticut, portions of massachusetts, as well. springfield on the massachusetts turnpike here, a lot of heavy snow coming their way today over toward worcester. and boss ten will begin to see heavy snow today. power outages could be lengthy. and then farther north into the mountains, a lot of these locations in concord, manchester, significant snow will fall for them today. what that means is power outages likely not only today, but about likely to last right through the weekend. that is the latest on this nor'easter. we'll send it back to you. >> and before we let you go,

explain why we're naming this storm athena. why are we naming winter storms? >> here at the weather channel, we have a new naming scheme. what it means is basically we're giving names to storms just like we would hurricanes where it gives attention to the storm, lets people get aware what have happens with the storm when it has maim i think pacts. now people taking action because of what's happening with the storm. >> and mike, thank you very much, sir. coming up, what will the next ten years bring for relations for china and the u.s.? we'll get a view from washington.

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[ male announcer ] don't just reject convention. drown it out. introducing the all-new 2013 lexus ls f sport. an entirely new pursuit. more than 2,000 hand picked chinese delegates gathered to kick off the communist party's week long leadership transition. senior fellow is in washington and joins us now. xenia, good morning. >> good morning. >> i want to explore the impact of the leadership on the u.s.

it's gotten drowned out amid the focus in washington. but just what is at stake as china prepares to hand over power? >> it's enormously important. we've been incredibly focused on the u.s. system for really the last six months or so if not longer. the american election is much louder, much more engaged democratic system that makes an awful lot of noise with an awful lot of press. the transition in china takes place behind closed doors, a lot of guesswork even today from the outside. so we know a lot less. in some respects you you could make the argument that the transition could be less significant, but i don't necessarily think that's so. who leads china over the next five, ten years is going to be just as important or certainly extremely important in the same way that we watch the american

election. >> and make a point that is really interesting because at a time when during the campaign we were focused on the nationalist rhetoric coming out of the u.s. campaign in general, you say it's actually china which is more likely to emerge with a more national list tick tone after the leadership transition. and why is that? >> so we look at the american election and we have a certain amount of patience for the primary and election rhetoric. you talk to people and they say this is election season, don't worry about what's said. wi assume the chinese system is less democratic to be blunt that they don't have the same kind of motivations. that isn't true. in china, you have much of the same need and in fact arguably given that it's not a democratic system, you actually have even more need for the party to show its legitimacy to the people to

explain to the people why it is worthwhile for them to ensure that these nine or these seven folk have control over china and what goes on in china for the next five to ten years. and so you have much the same rhetoric and you've seen this in china over the last section six. increase in national recent tore rick not just vis-a-vis the united states, but everyone more vis-a-vis the countries in the region, vietnam, philippine, japan, south korea. in order to essentially provide to the people of china for the party. >> the name -- we talk in the u.s. about an october surprise, hurricane sandy, super storm sandy, perhaps filling that role this year. but in china, a similar surprise in the emergence of the figure here who is now if anything seen as orchestrating perhaps a

transition that will be less reformist and how do you expect that to comply indicate u.s. china relations from here? >> in terms of the chinese equivalent of the october surprise, i would actually argue that they've had surprise after surprise after surprise throughout the year. we have to remember the earlier stories about the possible senior position on the standing committee, their leadership. and of course given the events earlier this year vis-a-vis his wife allegedly killing a british businessman, the level of corruption, he was dismissed from the party and is now jailed. so there's been quite a few surprises in what is normally a very well structured process into the chinese transition. in terms of the u.s. china rlgs ship, in a broad sense, i don't anticipate much of a change.

the interconnectedness between the u.s. and china is so great that neither country can afford turning their back on one another. but the devil is in the details. we thing jinping is that he may have a more realistic flavor. so we really don't know how it would play out. broadly it will be engagement with the united states. in the sesks, that's still to be seen. >> and we'll bring her back on the program as we do get some of that detail going forward. thanks very much for your time this morning. coming up, we'll bring you the latest on potential gridlock. let's just say likely gridlock on capitol hill. we'll speak with someone who says there will be a fiscal cliff solution at the very last

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if you're just joining us, these are your headlines from around the world. outgoing president hu engine you

hu jintao is calling on narrowing the economic gap. and stocks in europe try to hold on to the grown following the dow's worse day in a year. and spain has to pay a hefty price to investors to back its long term bond. and draghi warns economic uncertainty is impacting germany as he prepares to oversee the ecb's latest policy meeting. u.s. political leaders are promise to go avoid the ever looming fiscal cliff. u.s. house speaker john boehner said he'd pursue a deal with president obama that would include higher taxes under the right conditions. this to help reduce the

country's looming issue at the end of the year. if an agreement isn't reached, billions in spending cuts in nearly a 5% rise in tax rates will go into effect. and that could easily push the u.s. back into a recession. well, our next guest thinks the u.s. government weren't quite go over the enl, but that it will be done to the wire to get an agreement and that will mean late nights for him. joining us is damian paletta from the "wall street journal." good morning. you'd know better than anyone what is likely to happen in the weeks ahead here. what did john boehner say yesterday? was he signaling a deal, was he opening the door or is the door still slammed shut for these two parties to reach an agreement before year end? >> after having watched the white house and republicans in congress bludgeon each other to death for the last two years on the deficit, yesterday the whous said they wanted to work with the republicans, they didn't

draw a line in the sand. and speaker boehner had much the same thing to say. he said he wants on to get a deal. i think both the white house and republicans are looking for a way out of this at this point and they can't cave immediately. there will probably be points where it look tsz like the wheels have come off, but i think the initial rhetoric was all positive. they're looking to reach out and cut some sort of deal and talks have already begun. >> you singled out two important phrases, one being new revenue and the other being reform. again, do these signal the gop is moving towards some sort of agreement with obama and what are some of the logistical hurdles in terms of the personnel leadership for both beds of congress and in terms of the working days left here? >> well, yeah, there's very little time left. no way they'll throw a hail mary pass and catch it in the end

zone on new year's eve. but speaker boehner said we're not going to raise tax rates. we can't support that. however, we can offer new revenue but he's really talking about new taxes as part of a process that overhauls the tax code. that's kind of washington speak for getting rid of or eliminating a lot of tax deductions. which is really about a trillion dollars a year. so if we get rid of a lot of tax deductions and clean up the tax code, that's a way we can get new revenue and i think what he was signaling is that's the way i can get republicans to get in line with this because i'll never be able to convince them to support raising tax rates. president obama had said repeatedly that he wants the tax rates on the upper two tax brackets to increase. in his speech wednesday morning, he did not go back to that line in the sand. i mean, he said let's do tax reform, he's already called

boehner and several other complains. so this is startsing out in an interesting spot. things are looking like they'll at least be back at the table. >> and the market selloff yesterday, people were attributing the fact that an obama re-election is more likely to mean we go over the cliff because then it will allow him and the gop to pull back those rate which is go up and be able to say to their constituents at least we did this. so are markets right to be pricing in that scenario? >> markets are probably right to anticipate a crazy next two months. the experience we had last year with the debt ceiling, that whole week where the u.s.ed had its debt down grgraded by stand

& poor's, that was a scary time. the market knows the president has strong positions. the signals we got yesterday is that there may be willing to cool it lay down their swords for a couple days and get the talks started, but the track record for both sides is not a lot of hugging and kissing so the market said here we go again, let's kind of get ready for a tough couple weeks. >> that's for sure. damien, thank you so much for joining us this morning. and speaking of which, we've just been discussing the fiscal cliff, i'm getting so sick of that phrase. but fitch is out saying that european investors are actually bullish on a resolution of the fiscal cliff. this press release says that according to the investors they polled, 82% of them expect the cliff to be avoided. although they do indicate that it's affecting confidence. whether this survey was taken before the selloff of the last couple of days, we'll have to double check. but nevertheless, they still see

some prospect here for an agreement across the pond. time for how about that stat. and we'll do it in ross' honor because he's not here to do it himself today. he will be around though to follow you with coverage of the bank of england decision and the european central bank. but we wanted to bring you this one. when is the last time a republican presidential candidate won without a nixon or a bush on the ticket? you may already know the answer to this one. the answer is 1928. again, that's the last time the gop won without a bush or nixon on the ticket. and there will be a record number of women serving on the senate. 20 members will be female. and it comes at a time of course when across the pond europe has been trying to get more females in policy positions of its own. if you take fair value into account, we're looking for a slightly negative open. we have, though, seen a little better tone in the market since the last it time we checked

this. european markets give you a sense of what we're seeing. we opened strongly in the green. we gave up those gains on reports that spain may not be asking for a bailout before the end of the year. and now we're seeing markets crawl back. ftse adding 0.3%, same for the cac 40. xetra dax adding half a percent and the ibex is now in the green. still to come, it's not a tasty quarter for kraft spinoff mond monday today lay.

we want to bring you corporate news. mondelez international reported a drop in sales and net profit numbers in its third quarter. the snacks business which is split off from kraft foods earlier in year blamed missteps in countries such as brazil and russia for the miss. it assured the issues should be resolved by the end of the year. u.s. grocery chain whole foods has posted third quarter profits in line with forecasts. total sales jumped 24% in the period as consumers continue to switch towards organic produce.

however the company did warn investors sales have been hit by the impact of hurricane sandy which left many of their customers without power. and that sent shares lower in after hours trade as you can see there, shedding about nearly 3%. we'll keep an eye on that. and just when new york city thought it was all over, a nor'easter called athena has smacked the tri-state area overnight dumping inches of snow over some of hurricane sandy's hardest hit areas. wind and heavy snow have brought down you power lines and electrical wires and thousands who lost power because of sandy just lost it all over again. now, caroline roth joins us from zurich because over in zurich, swiss re has reported results that have cheered the market. 1.6% at the moment. >> absolutely. earlier on in the session, they were up by as much as 3%, but losing always bet of team before obviously sandy happened in the

fourth quarter and swiss re reported numbers for the third quarter which were not affected, and that's why the numbers for the third quarters were so excellent. because of the of a sense of any major catastrophe. and that's why the come bine ec ratio was strong. on top of that, we had a higher than expected accounting one off gain, a gain on the sale of its re unit. net profit of $2.2 billion. we spoke to the cfo of swiss r event and we asked him whether he could quantify the fallout from sandy on the business.reve he could quantify the fallout from sandy on the business. he said it's too early, but he good give us his assessment on the impact on the industry

overall. >> given it's larger than hurricane irene, we expect to have some impact on the market. some charges for clients and for the reinsurance sector. and that capacity squeeze will probably have an impact on pricing. >> so in the longer term it could mean higher prices. this catastrophes. so a silver lining for the reinsurance industry. analysts do expect swiss re will be hit to the tune of $300 million on $400 million by hurricane sandy in the fourth quarter. >> thank you very much for that report. spain has reached its funding tar get if 2012. hu jintao calls for major reforms.

and the european central bank is set to decide on rates against a backdrop of violent protests in greece. still to come, it was a rough day for wall street yesterday. the dow jones saw its sharpest selloff for the year. we'll take a look at what could be in store for the rest of the year and into 2013 next.

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♪ [ male announcer ] some day, your life will flash before your eyes. ♪ make it worth watching. ♪ the new 2013 lexus ls. an entirely new pursuit. a couple corporate stories we're watching this morning. boeing has announced a major restructuring of its defense division. it will cut 30% of management jobs and will close factories in california. at&t says it plans to phase out its old fashioned telephone service. the company eventually wants to decommission the technology behind its deck i'ds old copper line network that currently

covers 76 million homes and businesses. at&t will spend $14 billionoff three years to extend its internet based broadband service to 78% of its land line service area. and on the agenda in the u.s., we've got important economic data, weekly jobless claims, my favorite. they'll hit before the market opens. and on the earnings front, up ins are kohl's, wendy's, disney and groupon. european trade this morning has been a mixed session. we started out in the green and then we had losses. markets are clawing back adding half a percent for the xetra dax. ibex 35 is back in the green after being down as much as 0.6%. u.s. futures are trying to fight to the positive. if you take fair value into account, the dow jonesville average would be adding about a

point at the open. not huge moves, but again, not a big come back from the big losses yesterday.the open. not huge moves, but again, not a big come back from the big losses yesterday. jim, first to you, one point of solace investors took from the trading session yesterday is that the vix did not punch above 20 about subpoena that significant, is it possible if we see volatile trade that we actually do see the vix rear its head? >> i think well see it go higher here. we're just at the beginning of the shock. in our view, we've come through a period where volatility was suppressed for about four months. p that has coincided with the most volatile period of the year which is historically between october and mid november. so we're still in the early innings of this and we think we'll see vix at least up

through 25 in the coming weeks. probably 20 to 30. but should brace for higher magnitude. >> that's a bit unsettling. >> it wouldn't surprise me in the markets get more volatile, but if you look historically, we get the buy on the rumor, sell on the news type of mentality which we had this week. but then typically we get a santa clauz type rolly and i like stocks here and i wouldn't be surprised to see that scenario play out this year, as well. >> so is the ugly trading a buying opportunity? >> absolutely. if you look back at 2008 when president obama won his first election, the s&p 500 the day before the election was up 4%

and then down 5% the day after. of course that was 2008 when we were going through that financial issue. so i do see it as a buying opportunity. >> take the fact that a lot of the consensus is a rally in to the fourth quarter, maybe a rally into the start of next year, traditionally a stronger period for stocks. should we doubt that we're actually going to follow that usual seasonal pattern this time around and what is in particular in your view that could really drive more of a risk off attitude for the next couple of weeks? >> as a firm, we're certainly constructive along the term, we think both earnings and real growth will be above expectations. but if you look back to march of 2009, we've had a long term step function higher. we think we're still in the early inning of the next step

down. so if you want to talk about 2013 as a firm, we're constructive. but again, i think people would be in denial if they look at yesterday as a one day event. it is only the beginning. implied volatility will move higher, implied correlation will move higher. volatility will move higher. a couple guests ago, you had someone talking about the fiscal cliff and their assumption was that it would play out down to the wire. if you want to pick a trigger, that certainly would fit. >> i wonder, too, how important the leadership transitions are that we're seeing in the u.s. and china today. should that be taking up a lot f of brain share for investors? >> everyone is concerned about the fiscal cliff and i think jim and i agree on where the stock

market is headed in the long run. maybe where we differ is fiscal cliff. i tend to think it's somewhat overblown. congress set the parameters along with the white house and they can change it. and worse case scenario, they're going to kick the can down the road. they're not going to come up with the grand bargain like a lot of people hope that they do and that will be disappointing, but they will for market sake at least kick the can down the road. >> if anything perhaps we get conditions where investors can look at sectors or areas of differentiation and not just a macro driven space. there was a bright spot in trade yesterday, shares of smith and wesson rallied on speculation that gun enthusiasts will stock up given obama might toughen gun laws in the years ahead. do you see whether it's the smith and w evenessons or other

sectors based on obama's re-election some. >> there's two sides of the corn. ic big energy will suffer, but clean energy does well. big phrma suffers, but the hospital space does well. financial services probably from a regulatory standpoint suv, but that's one of my favorite sectors. because i think the earnings expansion in the sector will outwaysectors. because i think the earnings expansion in the sector will outwayfavorite sectors. because i think the earnings expansion in the sector will outwaysectors. because i think the earnings expansion in the sector will outway -- >> it's your favorite because you're in it. >> i guess i'm a little biassed there. >> jim, do you have a take on micro or macro crow? >> if you look at what's happened in the market since mid october, you've had cyclical sectors, financials, energy, materials perform the worst.

yet the open interest put call ratio suggests there's not a lot of fear embedded. the other thing i'd point out is the second worst performing sector over that period is utilities. so this is not as simple as a risk on risk off period where you can go in traditional sectors. implications related to dividends obviously play in, as well. >> jim, your best guess to the action today? >> cautious is warranted. >> all right. we'll leave it there. jim and rob, thanks to you you both. thanks to everyone for tuning in this morning. you've been watching "worldwide exchange." european viewers stay tuned. ross westgate will be onset to walk you through the policy decisions. for the rest of you you, time for "squawk box."

good morning, everyone. today's top story is the markets. stocks coming off a sharp selloff. the day after the election, the dow turning in its biggest decline in nearly a year. in europe stocks seem to be cheering greek austerity vote and the ecb is set to announce a policy decision around 7:45 eastern time. in asia, chinese communist party is gathering to select new leaders. it is november 8th, 2012 and "squawk box" begins right now. feels good. thanks and welcome to "squawk x"